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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Segment analysis for a service company

Charles Schwab Corporation is one of the more innovative brokerage and Financial service companies in the United Slates. The company recently provided information about its major business segments as follows (in millions):

  Investor Services Advisor Services
Revenues $4,771 $4,597
Income from operations 1,681 1,660
Depreciation 171 154

a. How does a brokerage company like Schwab define the Investor Services and Advisor Services segments? Use the Internet and the Business Connection box in this chapter to develop your answer.

b. Provide a specific example of a variable and fixed cost in the Investor Services segment.

c. Estimate the contribution margin for each segment, assuming that depreciation represents the majority of fixed costs.

d. If Schwab decided to sell its Advisor Services business to another company, estimate how much operating income would decline.

a)

To determine

Fixed Cost: Fixed costs refer to the costs involved in the production that remain the same and do not change irrespective of changes in the volume of production.

Variable Cost: Variable costs refer to the costs involved in the production, which vary as per the changes in the volume of production.

To Explain: Investor Services and Advisor Services as referred to in a brokerage company like Company CS.

Explanation

Company CS is a brokerage company that deals with trading. In reference with the operations of Company CS, the following things

Investor Services: In reference with the operations of Company CS, Investor services deals with the brokerage, options ...

b)

To determine

To Enlist: The examples for variable cost and fixed cost in investor services segment.

c)

To determine

To Estimate: The contribution margin for each segment, assuming that depreciation represents the major portion fixed costs.

d)

To determine

To Estimate: The decline in operating income if Company CS decides to the sell the Advisor services business.

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